New Zealand’s Trade Dilemma

In the new partnerships New Zealand is joining, we need to maintain strong bottom lines.

Listener: 25 July, 2013

Keywords: Globalisation & Trade;

Southeast Asia was not a stable region in the 1960s, not least because of the conflict in Vietnam. In 1967, Indonesia, Malaysia, the Philippines, Singapore and Thailand came together to form the Association of Southeast Asian Nations (Asean). Subsequently, Brunei, Burma, Cambodia, Laos and Vietnam joined.

Progress was slow, and there was much distrust. After all, only the previous year the “Confrontation” between Indonesia and Malaysia ended; it cost over 700 lives, including those of seven New Zealand soldiers. Once, some militaries would not talk directly to each other but relied on intermediaries such as Australia and New Zealand. Today, the navies of Indonesia, Malaysia, Singapore and Thailand (assisted by India’s) jointly patrol against piracy in the heavy shipping lanes of the Straits of Malacca.

Although regional peace and stability may have been the initial driver, Asean has adopted a wider agenda of accelerating economic growth, social progress and cultural development among its members. Economic integration is not just a matter of abolishing such trade restrictions as tariffs and import licences; it includes facilitating trade in services, eliminating or easing other border controls, simplifying restrictions on investment, business movements and intellectual property rights. They plan to be the Asean Economic Community by 2015.

Were it a single economy, Asean would be the sixth largest in the world, behind the EU, the US, China, India and Japan. But because its individual states are jealous of their sovereignty, it is a much looser association. Inevitably, it has looked outwards, engaging with other trading nations in a number of free trade agreements (including one with us and Australia). It wanted a more ambitious extension known as “Asean plus three” (China, Japan and Korea) but because there was a danger of it turning into an uncomfortable China versus Japan conflict, Asean eventually settled on “Asean plus six”, inviting India, Australia and New Zealand to join the Regional Comprehensive Economic Partnership (RCEP). The group produces almost a third of the world’s GDP; its other members take 58% of our goods exports.

It is not as ambitious a trade deal – not addressing as many issues – as the Trans-Pacific Partnership (TPP) proposal led by the US. Since the TPP does not include China, some see it in conflict with RCEP, although there is considerable overlap of membership – four of the Asean members are involved in TPP negotiations, as are three of RCEP’s extra six.

New Zealand, involved in both, does not see it necessary to favour one over the other. Undoubtedly, though, each set of negotiators will be looking to the other, not wanting – if they can help it – to offer an inferior deal.

New Zealand, like other smaller Asean nations, has the challenge of being heard in the hubbub of international affairs. Although we have a number of trade agreements, some proposed ones are languishing while our partners attend to more important deals. Agreements that are multilateral (such as the Doha Round) and plurilateral (such as these) increase our effectiveness and reduce the chances of our being bullied, although they certainly don’t eliminate it.

The danger is that we may end up with an unfavourable deal. Of course we can walk out; the Prime Minister has stated that, in effect, we will from the TPP if there is not significant improvement of access for our food exports and if the effectiveness of our pharmaceutical purchasing arrangements is undermined.

He is right; we need firm bottom lines in all trade negotiations, but with a realistic acceptance that a country does not get wins for its exports without making some concessions – although the bigger bullies sometimes behave as if they think they can.

Such decisions involve careful judgment. The terrible dilemma we face is that New Zealand’s economic prosperity depends on specialisation and international trade. We can hardly hope to be a significant agenda-setter ourselves, but by working with other groups such as Asean we can, hopefully, advance our economic and national ends.

Brian Easton studied Asean on a trip sponsored by the Asia New Zealand Foundation.